Article - Underlying Flaws of Affiliate Rakeback

[Tim]

It's an interesting article and very well written. I agree with most of it, and this is coming from a rakeback affiliate (value adding I might add).

Although I have an issue with their mention of SEO as a contributing factor, in which they list PokerListings as a site that adds value. While I agree that they do add value overall, we all know how much of their SEO they devote to bonus codes and hijacking the work of other affiliates.

Another thing to add is the absurdity of the way some rooms operate rakeback. Take UB/AP as an example; they will only offer new affiliates 25%, and suggest either giving the players 25% (aff makes 0%) or offering 30% rakeback until you generate enough MGR (aff makes a loss). Nobody in their right mind is going to take that offer, so affiliates are forced to go the subaffiliate route. In turn this means the room has to pay out more than they would if they just gave a fair deal to the affiliate in the first place.

I agree with what ScrawnyBob says - it should be taken inhouse.

[thefarang]

Hi Bill / thefarang,

I just read your great blog post on the matter, here's my feedback:

1) You are 100% right that we look at the issue to narrowly, as optimizing search engines for site specfic keywords aka "best full tilt deal" etc. is also clearly cannibalistic. We'll incorporate that into the article.

2) With regards to rakeback, I think the article makes clear that we distinguish between centralized schemes run by the site and affiliate-run schemes such as affiliate based races or affiliate-based rakeback.
The former is absolutely fine and not a problem at all as it does not give rise to the downward spiral described in the presentation. I.e. if PokerStars gave flat 30% rakeback to everybody - direct players, affiliate-referred players, etc - this cannot be used for cannibalisation.

3) With regards to promotions / incentives, in principle there are many different intentions behind them:
- targeting recreational players / fish
- getting new players in / converting them from play money
- incentivising and reward VIP players
- etc

In practice, the "bad stuff" is done with VIP player targeted promtions, i.e. things that we all know high rakers are looking for.
While exclusive races and chases are perfect for cannibalisation of VIPs, you will not be able to do the same with a "scratch card promo" or "a trip to the Bahamas" raffled between evrerybody that made a deposit this month. Really nobody will think about "signing up his grandmother through affiliate XYZ" because of those things.
The same holds true for freerolls, however, there have been instances of freerolls where the top 10 rakes take part in it, and the total prices given are worth $20k - that's of course again clearly targeted at VIPs, and clearly with the intention of direct or indirect cannibalisation.
At the end of a day, anybody with some poker knowledge will be able to tell what stuff is cannibalistic and what is not.

Dominik, one of the questions one has to ask though is how does one view something like Full Tilt? It is not centralized according to your definition but they have applied rules that make all rakeback affiliate play on a level playing field.

And let me just be bluntly honest here . . . I run a rakeback site and Full Tilt's 27% gets far more signups than other sites offering 50% or more. In fact, I haven't earned a single penny off a site offering more than 40% even though I have sites who offer it. Nobody wants to play on a site that is offering huge rakeback but has no players.

The point being that the site doesn't need to run the rakeback. All they have to do is keep control over what can be offered. Rakeback is no different than your exclusive freerolls or other incentives that can be offered to sign up with one affiliate over another.

The problem is the fight between rakeback and non-rakeback affiliates. If Full Tilt wanted to go 100% rakeback I don't think it would hurt them at all. Their brand is big enough that they really don't need the affiliates. But at the same time their current loyalty system isn't as attractive as say Stars so they allow affiliates to offer rakeback as a different way to enhance their loyalty scheme.

Rakeback pisses off guys like you because you're fighting to provide a "contributing" service. And I have said many times in the past that this is a big problem. Poker rooms need to figure out that we provide different kinds of signups and compensate us differently based on the value of the players we send. It's the fact that everyone gets compensated the same regardless of value which is the real problem.

But like I said in my blog post, I think the longer-term solution is to get rid of lifetime MGR. It doesn't make sense for 90% of affiliates. Most affilaites aren't providing lifetime value so they shouldn't be getting lifetime benefits. Poker rooms should shift that back to the players over time. If they did that there would be no rakeback as we know it today.

But as I also pointed out in my blog post, you're one of the few people in this industry who actually get it. Even as an affiliate you're concerned about the overall poker ecosystem and what your players do to it. Unfortunately, most of your peers are just like most poker rooms . . . all they care about is short-term results and increasing their margins with little regard to the long-term impact of their actions.

EDIT: When I say 100% rakeback I don't mean offering 100% rakeback. I mean, if they ONLY offered rakeback.

[thefarang]

One more thing to add . . .

I did do some work once with a company that was on the XXXXXXX network. I had come up with a promotion idea that was directly targeted at losing players. Basically the idea was to keep them in the game by throwing them frequent reloads and sometimes just plain putting money in their pocket for playing. But when I reviewed XXXXXXX's network policies this was illegal. They were trying to keep rooms from circumventing the network and giving rakeback in the form of deposit bonuses. The sticking point was that you could not target a specific group based on rake generated or their win/loss.

Now, this is just plain stupid. The rule should have been written so that skins can't compensate winning players or target rake groups that predominantly have winning players. But they wrote it that you couldn't target any rake category.

When I called them and asked them if what I wanted to do was "illegal" they admitted it was but that the rule was flawed and that they would change it at some point (it may be changed already). But if I ran this promotion which did everything that the skin wanted us to do (bring in/keep fish players) we would have been slapped with a fine.

But, this is what the skins on networks are dealing with. They can't centralize anything because the networks who would be doing the centralization really aren't equipped with the right people to be competitive in the marketplace.

[Hazo]

The solution is for poker rooms not to have bonus codes at and for rakeback to be eliminated.

Simple as that.

[Johannes]

Dominik, one of the questions one has to ask though is how does one view something like Full Tilt? It is not centralized according to your definition but they have applied rules that make all rakeback affiliate play on a level playing field.

And let me just be bluntly honest here . . . I run a rakeback site and Full Tilt's 27% gets far more signups than other sites offering 50% or more. In fact, I haven't earned a single penny off a site offering more than 40% even though I have sites who offer it. Nobody wants to play on a site that is offering huge rakeback but has no players.

The point being that the site doesn't need to run the rakeback. All they have to do is keep control over what can be offered. Rakeback is no different than your exclusive freerolls or other incentives that can be offered to sign up with one affiliate over another.

The problem is the fight between rakeback and non-rakeback affiliates. If Full Tilt wanted to go 100% rakeback I don't think it would hurt them at all. Their brand is big enough that they really don't need the affiliates. But at the same time their current loyalty system isn't as attractive as say Stars so they allow affiliates to offer rakeback as a different way to enhance their loyalty scheme.

Hello Bill,

I would say that for a long time Full Tilt has been the prime example of the topics this article deals with. As you state, its a big site with good marketing, that doesn't truly need affiliates to the degree that it is relying on them. Still it funnels its high volume traffic through them (even now).

So even though they are now introducing rules which have the intent of leveling the playing field (at least for rakeback affiliates), they are still quite a bit away from it. A cap on rakeback is only effective at leveling the field if you also stop allowing exclusive promotions which are aimed at attracting VIP players. Otherwise you have the exlusive rake race wars in which affiliates are consistenly upping the prize pools in order to guarantee a certain additional % back to their high volume player base.

I won't even get into the topic of rake chases which serve the same function to an even more harrowing degree.

As long as Full Tilt has affiliate rakeback and allows exclusive races they will continue to cannibalize their own direct traffic - since any somewhat experienced player will not sign up with them directly. This is something where PokerStars is miles ahead of them - and perhaps also a reason why PokerStars is capable of offering a much more attractive central loyalty plan.

I do agree though. Not all traffic is created equal - and sites should start to not only realize this - but work at being able to compensate it more accurately.

Regards,

[Pokeraddict]

The most famous example of a network that didn’t adapt was the now defunct Cryptologic network,
which lost all of its contributing skins to cannibalization and ultimately collapsed without the influx of
fresh liquidity.

That quote is just patently false. There are countless reasons why Crypto imploded. This would be well towards the bottom of the list. Brands like Playboy and WPT failed to perform at all on that network and basically failed to bring anyone in and the big books/casinos were there until almost the bitter end. They made a ton of mistakes and rakeback isn't anywhere close to the reason that network failed. The entire quoted statement makes zero sense to any old school online poker player or affiliate that watched Crypto implode.

I've been around since the start of rakeback and have seen it go all over the place. I'm such a player advocate that you will have a hard time convincing me rakeback is bad. Sure the model was invented by affiliates not the poker rooms and if you compared it to other industries it seems like an absurd marketing ploy it is here to stay.

Too many smaller rooms need these props so to speak to keep games going, at least while they are small and middle size. Two operators have stated to me rakeback was much less expensive as props and served the same purpose. I can see the pickle Full Tilt got themselves in and have tried to find a way out of but so many smaller rooms have to have this set up as without it they would have very few players.

The article makes several key points and it is easy to see both sides but the author has missed several other key ones as well. There are certainly poker rooms that hate that they ever got into rakeback as well as those that are glad they didn't miss out on the boom.

I also liked this self promotion that is debatable:

3. PokerStrategy.com is the biggest poker community world-wide

[Dominik]

Dominik, one of the questions one has to ask though is how does one view something like Full Tilt? It is not centralized according to your definition but they have applied rules that make all rakeback affiliate play on a level playing field.

And let me just be bluntly honest here . . . I run a rakeback site and Full Tilt's 27% gets far more signups than other sites offering 50% or more. In fact, I haven't earned a single penny off a site offering more than 40% even though I have sites who offer it. Nobody wants to play on a site that is offering huge rakeback but has no players.

The point being that the site doesn't need to run the rakeback. All they have to do is keep control over what can be offered. Rakeback is no different than your exclusive freerolls or other incentives that can be offered to sign up with one affiliate over another.

Hi Bill,

I think you actually give a perfect example for what is also "wrong" with rakeback from an ecosystem point of view, and Full Tilt is probably by far the best example.

One of the core reasons why rakeback affiliates generate so many sign-ups for Full Tilt is because a player must go through a rakeback affiliate in order to get rakeback at Full Tilt.

If a player goes to Full Tilt direct, he's literally screwed (of course Rakebackpros mitigates this slightly).

Thus, it's not really that affiliates are driving lots of traffic to Full Tilt, it's that Full Tilt is forcing a lot of already convinced players to take a detour through a rakeback affiliate in order to get rakeback.

The reason why this is very bad for the ecosystem is that as a result of the above, the genuine marketing activities funded by Full Tilt or by contributing affiliates suffer greatly. Essentially, there is double paying for a lot of traffic.

Now of course one might say: "well, but that's really just a question about who earns more money, Full Tilt or the rakeback affiliates".

The problem however is that a large amount of rakeback affiliates do not use their income generated to actually generate new poker players, in fact many use it to become more and more cannibalistic (races, chases, advertising in pro player forums, etc) trying to get a larger share of the already existing VIP player base.

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Regarding the promotion idea you mentioned (aggressive reloads to losing players) - this is great and something I have been arguing for as well. If that's against network regulations, then of course they need to be adjusted. I'm actually convinced nowadays that network regulations work best when combined with a very solid understanding of poker ecology and common-sense. To get to this stage, education is key, which is why it is so important that debates about the ecology topic are held publicly.

[Dominik]

That quote is just patently false. There are countless reasons why Crypto imploded. This would be well towards the bottom of the list. Brands like Playboy and WPT failed to perform at all on that network and basically failed to bring anyone in and the big books/casinos were there until almost the bitter end. They made a ton of mistakes and rakeback isn't anywhere close to the reason that network failed. The entire quoted statement makes zero sense to any old school online poker player or affiliate that watched Crypto implode.

One of the core reasons that the big brand did not succeed in the Crypto logic was because they were - as everybody else - paid on MGR, but could not successfully get an ROI on their campaigns precisely because all the high MGR players were not going to stay with them.

Proper marketing - required to keep a network alive - is expensive. If I'm a stand-alone site, I spend $1m on marketing, get $5m of depsoits out of this, I can be certain that the rake generated out of those deposits (say 25% after bonuses etc) end up in my pocket, i.e. 1.25m. From an ecology perspective, I have created 250k added value for the room, and a striking 3.75m for the winning players to share among themselves.

However, in a network situation, those $5m I've generated with my marketing will not get converted into rake by my players, but by the high MGR players that are playing through a cannibalistic skin. Thus, I might only increase my own rake by $500k through that campaign - and have made a $500k loss. Consequently, I'm not going to run these campaings. As a result, the players are not enjoying the benefits of the deposits made by all the losing players that my large scale campaign would have generated.

A healthy ecology is crucrial for a professional poker player. Without it, he simply won't be able to make money in the longer term, as every dollar he makes must have come from somewhere - ultimately a losing player.

Crypto ecology was not healthy at all. The average fish sent to a contributing Crypto skin was easily 50% less "valuable" in MGR terms compared to other sites. (he loses his money quicker, and if he turns into a "shark" he moves to another skin) Thus, nobody bothered generating any. Instead of turning it around, people tried to compensate by giving even more and more rakeback which of course made the problems worse and induced a downward spiral that lead the network to implode.

I've been around since the start of rakeback and have seen it go all over the place. I'm such a player advocate that you will have a hard time convincing me rakeback is bad. Sure the model was invented by affiliates not the poker rooms and if you compared it to other industries it seems like an absurd marketing ploy it is here to stay.

I'm absolutely for rakeback, however, it should be centralized and managed by the poker room / poker network, and it should not be affiliate/skin based as this is what sets of the downward spiral.
If Full Tilt changed the 27% affiliate based system tomorrow to a 35% global one (everybody gets it) - great!

Too many smaller rooms need these props so to speak to keep games going, at least while they are small and middle size. Two operators have stated to me rakeback was much less expensive as props and served the same purpose. I can see the pickle Full Tilt got themselves in and have tried to find a way out of but so many smaller rooms have to have this set up as without it they would have very few players.

If you mean smaller rooms within a network, quite frankly, there is no reason why they should actually be there in the first place. If they cannot add value by investing into proper new player acquisition, but are simply feeding of the liquidity that the network provides (by just trying to poach VIP players from other skins), they are just harmful.

Finally, if you are a small stand alone room / small network that tries to get going, why not give 80% rakeback to everybody for the first 3 months or so and then moving into a still very aggressive central rakeback/VIP programme? If done corretly and combined with proper larger scale marketing, this works.

[MJ]

Paynorake didn't exactly take off, so I don't think your last comment works either.

The answer has always been simple: Rooms provide and compete over comps and service in house. The fact that a poker site has to trust affiliates to provide comps and service ethically just doesn't make any sense.

I'm a player advocate, I believe in value to the players - but taking rakeback to in house VIP programs is and always will be the solution.

[Pokeraddict]

If you mean smaller rooms within a network, quite frankly, there is no reason why they should actually be there in the first place.

Why would skins have to hire props? I mean main flagships on smaller networks. It would be wrong to call out what networks have props but you can't possibly think Betcris is providing props for Yatahay.

One of the core reasons that the big brand did not succeed in the Crypto logic was because they were - as everybody else - paid on MGR, but could not successfully get an ROI on their campaigns precisely because all the high MGR players were not going to stay with them.

All I can try to understand from this statement is that Crypto failed because they used dealt instead of contributed. All Cryptos were on level playing fields. They all used the same bonus structures, point systems, rakeback tiers and this was before the $100,000,000,000,000 affiliate specific rake races you seem so against. There was almost no reason to choose one Crypto over another besides the whopping 5GBP/hr/table/25GBP month max Will Hill offered and then they charged you to cash out if you didn't give them more action after that.

Crypto was tiered rakeback so the more you raked the higher % you got. While each had a monthly bonus it was hardly worth the effort to whore every monthly bonus unless you were already going to give massive amounts of action to Crypto anyway.

I was a veteran bonus whore, owned the directory site that helped rakeback explode and eventually went on to help run Bonuswhores.com. With all of that experience I can't figure out where you are getting your info from. It truly seems completely wrong. It appears to me that you just picked on a network that decided on its own to consolidate like many insiders knew they would do from banning US players and blame it on rakeback. They were weak to begin with and as soon as they banned US players most people who understood the industry knew Crypto would consolidate. To use that network in a thesis for how rakeback affiliates will doom the industry is completely misguided IMO.

I'm certainly not saying you are completely off target. You make some good points but so much of it is in hindsight. Affiliate rakeback will never be perfect but it is here to stay. Big rooms might be going one way but if smaller sites want to succeed they will have to go the same route bigger rooms went once upon a time or else they will lack the ability to market to the masses.